Personal finance expert Martin Lewis has outlined six key points he hopes to see in Rachel Reeves’ budget announcement this Wednesday. Speaking to The Times, Lewis revealed that he had a discussion with the chancellor and penned an open letter detailing the necessary changes.
With speculation mounting over potential tax hikes in various sectors, including employers’ National Insurance, public sector pensions, inheritance tax adjustments, and increased gambling taxes, Lewis emphasised the need for measures to support the nation’s poorest, especially after the winter fuel payment cut. Now, only pensioners with an income below £11,400 qualify for the £300 benefit, leaving around 10 million without the support they previously received.
The eligibility is limited to those on Pension Credit, sparking fears that some may struggle to afford heating. Lewis stated: “We are looking at perhaps one of the tightest budgets we have seen in a long time, but none of the things I am suggesting are pipe dreams. They are realistic asks and many do not require much expenditure,” adding, “A large number of things within the consumer finance world are simply poorly designed. We need a fair system that works well.”
After a period of financial uncertainty, taxpayers are preparing for some difficult choices. However, Lewis is optimistic that the chancellor will outline her strategy for brighter days once the finances have been stabilised: “People don’t mind short-term pain if they can see what the end game is.”
Here are six changes he wants made
1. Winter fuel payment.
The government has implemented means-testing for the winter fuel payment. These yearly payments of up to £300 were previously given to all pensioners but now only those receiving pension credit – a benefit that boosts your weekly income to £218.15 if you’re single or £332.95 for a couple. The full state pension is currently valued at £221.20 per week.
“This was an odd way for a new government to make its mark and I’m not sure they fully understood the impact it would have,” commented Lewis. “I have no objection to the principle of means-testing the payments – there’s no need for millionaires and billionaires to receive them. But I do take issue with both the level of the means test, as £11,300 a year is too low, and the mechanism, because basing it on a critically underclaimed benefit was a poor decision.”
“About 800,000 of those who are eligible for pension credit do not claim it, and so will not get the winter fuel payment. It means that people the government believes should get the payment, including many of the poorest and most vulnerable, are missing out because they haven’t completed the complex claim form. That is wrong, worrying and potentially life-threatening,” Lewis stated. “One solution, which is imperfect but workable, would be to broaden the eligibility criteria so that pensioners who get pension credit or are in council tax bands A to C qualify. “
2. Child Benefit
Since April, parents earning below £60,000 have been eligible for the full benefit (up from a previous limit of £50,000) but have to pay back 1 per cent of the benefit for every £200 earned above that limit. Once one parent earns £80,000, the family are entitled to nothing.
“The benefit is still based on individual rather than household income, which makes it incredibly unfair,” Lewis stated. He explained that a household where two parents each earn £59,999 – a combined £119,998 – would receive the full benefit, but a household where one parent earns £80,000 would get nothing. Mr Lewis said: “There are real problems in changing the way this works because our tax system is based on individual not household earnings. Hunt promised to shift to a system based on household rather than individual income by April 2026, and I want a commitment from this chancellor to continue with that.”
3. Tax-free childcare
“This perk for parents is critically underclaimed and that is because it is badly named – it is instantly confusing and off-putting,” said Lewis. The tax-free childcare scheme replaced the old childcare vouchers and offers parents up to £2,000 a year towards childcare costs. You set up an account through the Government Gateway system and for every 80p you put in, the government will add 20p.
Parents who earn up to £100,000 can claim up to £500 every three months. “Our research showed that if we changed the name to something like ‘the working parents childcare top-up’, which actually describes what the payment is, then you would massively increase the number of people claiming it,” he explained. “This would be very cheap and easy for the government to rename so that more people can benefit.”
4. The Lifetime Isa
Introduced in 2017 to assist first-time buyers onto the property ladder, allows those aged 18 to 39 to save up to £4,000 annually until they turn 50, with a 25% bonus on their savings. However, there’s a catch: withdrawing funds before age 60 for anything other than purchasing a first home incurs a 25% penalty, which means losing the bonus and some personal savings. For example, a £10,000 saving with a £2,500 bonus would result in a £3,125 penalty, reducing the original savings by £625.
Additionally, strict rules apply, such as the property price cap of £450,000, which hasn’t increased since 2017 despite rising house prices, leaving many young people unable to use the account for home purchases, according to Lewis. “This is very easy to fix. All you have to do is make it so that if you buy a property above the threshold, you don’t get the bonus, but you also do not pay a fine.”
5. Energy bills
The daily standing charge, which is the amount you pay simply for being connected, is capped by the energy regulator at around 31p a day for gas and 61p for electricity, amounting to over £300 a year. In contrast, just three years ago, this charge was £86. “This means that low-usage households who reduce their energy consumption don’t reap the benefits. It’s particularly unfair to people who have gas central heating that they switch off for six months of the year,” Lewis said.
6. Carer’s allowance
This benefit is given to individuals who look after someone for at least 35 hours a week and earn under £151 a week post-tax, with the payment standing at £81.90 weekly – roughly £4,258 annually. However, earning even a penny over this limit means losing the entire allowance and having to repay any funds received mistakenly.
Martin said: “We need a change so that if you earn above the threshold, you gradually lose your allowance in a tapered way, rather than it being a cliff edge. Any clawback should only be based on the amount that you earned over the threshold, not the whole payment.”